Feature – Online pricing and unfair practices: how to not get fined £60,000

Posted: May 14, 2019

Attempting to mislead consumers with false pricing information can prove remarkably expensive, as one retailer recently discovered. Gwendoline Davies, head of commercial dispute resolutioon and a retail specialist at law firm Walker Morris LLP, discusses the case and how you can avoid suffering a similar fate…

In a recent high-profile case, Signet Trading Limited, the owner of high street jeweller H Samuel, was fined for providing misleading pricing information online. The case highlights both what retailers can and can’t do when it comes to posting prices and promotions in light of a new national and international drive towards the enforcement of consumer protection laws.

According to the facts, Torfaen County Borough Council’s trading standards team pursued a prosecution over the misleading pricing of a range of diamond rings on the H Samuel website. The charges related to the relatively common practice of using reference price promotions, whereby retailers aim to prove good value, and therefore prompt consumers to buy, by referring to one or more other, usually higher, price[s] at which the item has been offered for sale.

In the case, H Samuel’s website had failed to inform consumers that items had previously been on offer for sale at lower ‘intervening’ prices. Customers were therefore unaware whether they were receiving a genuine bargain. Signet cooperated with the council’s investigation and pleaded guilty to what the judge accepted were system failings as opposed to deliberate attempts to mislead customers. Whilst credit was given for that, Signet/H Samuel was nevertheless fined £60,000 in respect of the sale of rings which had otherwise resulted in a gain to the company of around £6,500 and was ordered to pay the council’s costs of £13,382.

A representative from the prosecuting team said that the H Samuel case represents a “clear warning” to retailers that trading standards officers will act in the interests of consumers and take action where traders fail to adhere to consumer protection legislation.

It’s also clear that retailers must be very careful, when using reference pricing – either in online promotions or via any other marketing communications – not to mislead customers into thinking they are getting a good deal. Guidance on this, and related pricing issues, is available on the Advertising Standards Authority and Committee of Advertising Practice website and in the Chartered Trading Standards Institute’s April 2018 Guidance for Traders on Pricing Practices.

The law

The Consumer Protection Regulations (CPRs) were introduced in 2008 to implement the Unfair Commercial Practices Directive into UK legislation. They prohibited businesses from engaging in unfair commercial practices in their dealings with consumers. These include, for example, giving false or misleading information; failing to give material information; exerting undue pressure on consumers; or engaging in any of the 31 specific banned practices listed in Schedule 1 to the CPRs.

Crucially, consumers are not only those people who actually buy from or pay a business – they also include anyone who is a prospective customer.

In detail, it is a breach of the CPRs to give information to consumers that is misleading to a material degree; relates to one or more pieces of information which consumers are likely to take into account when reaching a buying decision (such as the nature of a product or service, specification, price, locality, sales service, terms of sale, incentives or other aspect or characteristic of the product/service); and causes, or is likely to cause, the consumer to make a different buying decision.

For the purposes of the law, information might be misleading because it contains false information, because it is deceptive, or likely to deceive a consumer even if, strictly, it is factually correct. This includes information which is given verbally, in writing or visually.

Giving false or misleading information under the CPRs also specifically includes any commercial practice or marketing which creates confusion with competitors’ products or services, and advertising that the retailer is bound by any code of conduct but is not adhering to that code.

The CPRs require businesses to be proactive. They impose a duty to disclose material information that a consumer needs to make an informed decision. A common trap for the unwary is that liability for misleading by omission cannot be avoided if the retailer does not know what it should know and has taken no reasonable steps to find out.

The CPRs also prohibit commercial practices which intimidate or exploit consumers; which restrict or are likely to restrict how they act or make choices; utilise harassment, coercion or undue influence; and/or which significantly impair or limit or are likely to impair or limit a consumer’s freedom of choice.

Finally, the CPRs place a general prohibition on commercial practices where a business fails to act in a professionally diligent manner in accordance with honest market practice and/or good faith and they list, at Schedule 1, 31 specific ‘banned practices’.

All of this laid out, if a retailer is faced with prosecution, it may be possible to raise a defence if the offence was committed because of a mistake, reliance on information supplied by another, another person’s act, or because of some other accident or cause outside the retailers control; and if all reasonable precautions were undertaken to try to avoid the offence in the first place.

However, there is no defence if a retailer knowingly or recklessly allows its or its employees’ conduct to fall below honest and professionally diligent standards.

Practical steps

There are, however, some practical steps that retailers can take to avoid CPR offences. Following these should also provide retailers with evidence to support a due diligence defence if any complaint, investigation or prosecution is brought.

Firstly, it’s important to provide training to all staff involved, directly or indirectly, with the sales and marketing (including production of hard and soft copy materials) of services/products, retaining evidence of such training.

Next, taking care that all information, online and in all other forms, that is gathered and presented to consumers (potential and actual) is accurate, fair, not deceptive or misleading and does not leave out material facts will further protect the retailer. Having safeguards in place as to the accuracy and security of all such information is key.

Policies, as in any other part of a business, are essential. These should be updated (or introduced) together with procedures regarding the review/maintenance/correction and updating of marketing material and other consumer-facing information. At the same time, consumers should be directed to any publicly available information which might affect or assist with their buying decision. Lastly, it’ll help a retailer if it maintains a comprehensive audit trail of all these efforts.

But if trouble does arise, there are tools that can be deployed in defence.

Initially, consider if the complaint is time-barred. There is an applicable limitation period which provides that no prosecution can be brought more than three years after an offence was committed or one year after the discovery or report to trading standards, whichever is the earlier.

Secondly, look to see if a complaint can be negotiated away. If it can, note that negotiating a settlement with a consumer complainant may not, of itself, prevent a prosecution, and it may not guarantee confidentiality. Retailers should seek specialist legal advice to assist with any settlement negotiations and to make sure that any agreements are properly documented and include confidentiality obligations.

Treat every customer and potential complainant fairly, politely and professionally, and be honest and open in all dealings so as to foster good relationships. Good customer relations can avoid or quickly resolve complaints and can help to avoid reports to the authorities.

If none of these steps work, then consider whether the due diligence defence can be raised.

The reach of the CPRs is wide, as are the enforcement provisions, which attract both civil and criminal liability. Depending on the circumstances, breach of the CPRs can result in unlimited fines and/or up to two years’ imprisonment. Reputational consequences can also, of course, be devastating.

The future

The stance adopted by the council in Torfaen is indicative of a wider drive, both within the UK and across the EU, to enforce national and cross-border laws to protect consumers.

In February (2019), the European Commission called for online shopping websites to give customers clearer information about pricing and discounts after finding that some 60% of websites screened showed irregularities regarding compliance with consumer protection laws. This was particularly so in relation to the advertisement of pricing promotions, and the failure of traders to provide an easily accessible link to the Online Dispute Resolution platform which is required under law.

In the same month, the chair of the UK’s Competition and Markets Authority (CMA) announced a package of preliminary proposals to strengthen the CMA’s consumer protection enforcement tools.

This area is definitely one to watch and retailers should note that this new focus on compliance with consumer protection laws is likely to result in increased scrutiny, at a local, national and even international level, of their online and marketing practices.

More information on the banned commercial practices can be found at www.legislation.gov.uk/uksi/2008/1277/schedule/1/made